US attack on Iran occurs at a fragile time for the global economy

(Bloomberg) – US attacks on Iran’s three main nuclear facilities occur at a fragile moment for the global economy, and the perspectives now depend on the way and intensity with which the Islamic Republic will return.

The World Bank, the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF) have reduced its global growth projections in recent months. Any significant increase in oil or natural gas prices – or trade disturbances caused by a climb of conflict, would function as another brake for the world economy.

“We’ll see how Tehran will answer, but the attack probably puts the conflict on a climbing path,” Bloomberg Economics analysts wrote, including Ziad Daoud in a report. “For the global economy, an expanding conflict increases the highest risk of oil prices and exerts a stupid impetus on inflation.”

The growing geopolitical risks intersect with a possible tariff climbing in the coming weeks, as suspensions of the heavy “reciprocal” rates of President Donald Trump are about to expire. The greatest economic impact of a prolonged conflict in the Middle East would probably be the significant increase in oil prices.

After the US attack, a derivative product that allows investors to speculate on raw oil price fluctuations rose 8.8% in the IG Weekend Markets market. If this movement remains in the reopening of business, IG strategist, Tony Sycamore, projects that the future of WTI (West Texas Intermediate) will open around $ 80 the barrel.

Much will depend on short -term events. Iran’s Foreign Minister Abbas Araye said US attacks are “outrageous and will have lasting consequences.” He quoted the United Nations Charter regarding self -defense provisions and said Iran reserves all the options to defend their sovereignty, their interests and their people.

Bloomberg Economics identifies three Iran’s response options:

1. Attacks on personnel and US assets in the region
2. Target in Regional Energy Infrastructure
3. Close the Ormuz Strait using underwater mines or harassing ships that pass the channel

In the extreme scenario in which the Strait of Ormez is blocked, crude oil could shoot in addition to $ 130 the barrel, according to Daoud, Tom Orlik and Jennifer Welch. This could take the US consumer price index (CPI) to about 4% in summer, forcing the Federal Reserve and other central banks to postpone the schedule of interest cuts.

About a fifth of the daily supply of world oil goes through the Strait of Ormuz, which is between Iran and Arab neighbors of the Gulf, such as Saudi Arabia.

The US is liquid oil exporters. But higher oil prices would only aggravate the challenges that the US economy is already facing. The Fed updated its economic projections last week, reviewing US growth this year from 1.7% to 1.4% as policy formulators would digest the impact of Trump and Growth Tariffs.

As the largest buyer of Iranian oil exports, China would suffer the most evident consequences of any interruption in oil flow, although its current stocks can offer some relief.

Any interruptions in maritime traffic by the Strait of Ormuz would also have a significant impact on the Global Liquefied Natural Gas Market (LNG). Qatar, which accounts for about 20% of GNL global trade, uses this route for export and does not have an alternative passage. This would leave the global GNL market extremely tight, significantly raising gas prices in Europe, as noted by Bloomberg Economics.

Although investors may fear that the supply is interrupted if hostilities intensify, OPEC+members, including the group’s de facto leadership, Saudi Arabia, still have wide idle capacity that could be activated. In addition, the International Energy Agency may choose to coordinate the release of emergency stocks to try to calm prices.

“The tensions in the Middle East represent another adverse shock for a weak global economy,” said Ben May, Oxford Economics Macro Macro Research Director in a report released before the last climb. “Higher oil prices and the consequent increase in inflation measured by CPI would represent a great headache for central banks.”

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